LONDON, May 2: Gold edged higher on Friday but was weighed down by the dollar’s recovery against the euro and sharp declines in holdings of bullion exchange traded funds, analysts said.

The metal has fallen nearly 18 per cent from a record high of $1,030.80 hit on March 17. It was at $854.60/855.60 by 1019 GMT after falling to $848.80, against $850.25/851.65 in New York late on Thursday, when it hit a four-month low of $847.10.

The $850 level, which is also 1980’s record high, should hold. But if it is broken convincingly, then the whole precious metals complex might go down further, said Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus, a German precious metals trading group.

People are perhaps looking elsewhere, such as equities. It seems gold is not the flavour of the day.

Bullion investors watched the dollar, which hit a two-month high against the yen and was almost steady against the euro after US data the previous session reinforced expectations the Federal Reserve will keep interest rates on hold for a while.

Data on Thursday showed manufacturing activity shrank less than expected in April and consumer spending rose in March, easing investor concerns about the depth of any US economic recession and making US assets look more attractive.

We believe that the dollar will be a less bullish factor for gold in the coming weeks, Michael Widmer, metals analyst at Lehman Brother said in a market report. The recent reduced price support has been exacerbated by a seasonal weakening of demand. Against this fundamental backdrop, we would not be surprised if gold prices remained weak in the near term, he added. A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

Oil fell for the fourth day in a row, slipping below $112 a barrel, pressured by a firm dollar, easing supply worries in major crude exporter Nigeria, and concerns that demand in United States will slow.

Investors awaited the monthly US payrolls report later in the session to see how sustainable the recent rally in the dollar is likely to be.

Weaker-than-expected statistics could possibly inject some weakness in the dollar, which could see some short term alternative investment fund flows into commodities, Standard Bank said in a daily market report.

US gold futures rose, with the June contract rising $5.90 an ounce to $856.70.

Platinum fell to $1,857/1,877 an ounce from $1,860.50/1,880.50 late on Thursday, but palladium was up at $406.50/414.50 an ounce from $406/414. Silver rose to $16.27/16.32 an ounce from $16.16/16.22.—Reuters